Posts from Tuesday Sep 21 2010

Indian outsourcers in US hiring push

Indian IT outsourcing companies are making a push to recruit more staff in the US, stung by tougher immigration regulations for foreign software engineers on short-term contracts who are allegedly “stealing” American jobs, the FT reports. Tata Consultancy Services, Infosys and Wipro, the three largest Indian outsourcing companies, are together hiring 2,300 staff, which would increase their combined US payroll by about 13 per cent.

Seoul tells chaebol sharks to stop snapping up small fry

It was fitting that Lee Myung-bak, the South Korean president, served mackerel at a recent breakfast for the country’s dozen mightiest conglomerate bosses. His message, after all, was that these big sharks should stop eating the little fish, the FT reports. Mr Lee accused the heads of family-run companies, including Samsung Electronics and Hyundai Motor, of undermining the economy by snuffing out or gobbling up small and medium-sized companies that account for 90 per cent of jobs in South Korea.

Relief at Ireland’s €1.5bn bond issues

Ireland’s bond markets rose sharply after the country successfully borrowed more than €1bn in an important test of investors’ appetite for eurozone debt, the FT reports. Dublin borrowed €1.5bn in eight-year and four-year bonds on Tuesday, with the auctions of its sovereign debt covered more than five times and nearly three times respectively. But analysts warned that the country still faced the risk of a Greek-style multibillion-euro bail-out unless it turned round its economy. The price of Irish debt recovered as some confidence was restored in Dublin on the back of the bond auction. The country’s cost to borrow had risen to record levels of 6.47 per cent for 10-year bonds on Monday. Irish 10-year bond yields, which have an inverse relationship with prices, fell 18 basis points to 6.15 per cent, Portuguese yields fell 4bp to 6.21 per cent and Greek yields fell 27bp to 11.18 per cent.

Deutsche Bank struck by trading plunge

Deutsche Bank has revealed a big downturn in trading and has warned of an expected quarterly net loss following a €2.3bn ($3bn) writedown over its offer for its rival Deutsche Postbank, the FT reports. Germany’s largest bank said on Tuesday that its biggest and most profitable investment banking operations had suffered a marked downturn in July and August and would report third-quarter profits “substantially below the level” of last year. Last year Deutsche made net income of €1.4bn in the third quarter. The warning from Deutsche, one of the leading global banks in the trading of fixed-income products and foreign exchange, provides further evidence of a downturn in the sector.

Sinochem looks to spoil BHP’s Potash bid

Sinochem has underscored its interest in derailing BHP Billiton’s bid for PotashCorp of Canada, appointing Deutsche Bank and Citigroup to help it evaluate moves to disrupt the miner’s $39bn hostile offer for the company, reports the FT. A Chinese bank, thought to be Industrial and Commercial Bank of China, was also part of the team, people familiar the matter said. However, they warned that the state-owned chemicals group had not yet decided whether to proceed. Sinochem could offer to take a strategic stake in PotashCorp rather than mount a full bid, industry bankers have previously said, in a move that could ease political opposition to the Chinese company’s intervention in the takeover battle.

Pope’s top bankers in probe

Italy’s finance police have seized €23m held by the Vatican in an Italian bank and placed the Pope’s top two bankers under investigation for suspected money laundering, reports the FT. Police confirmed media reports that they had confiscated the funds held by the Institute for Religious Works (IOR) – the Vatican’s bank – in an account at Credito Artigiano, an Italian bank, after the Bank of Italy questioned two attempted transfers. Ettore Gotti Tedeschi, former head of Bank Santander’s Italian operations and a professor of ethical finance, was appointed head of IOR a year ago. The second official being investigated is Paolo Cipriani, the bank’s director-general.

Traders see rising chance of Fed easing

The dollar and Treasury yields fell while stocks and oil held steady after the US Federal Reserve decided to hold interest rates at the current level, but opened the door to future quantitative easing to aid the economic recovery, the FT reports. The Fed’s open market committee said that “inflation is likely to remain subdued” as the economy continued to be weak, and that it is “prepared to provide additional support” in the form of buying Treasuries to provide cash to lenders if needed. The sharpest reaction was in the currencies market, where the dollar fell to its lowest mark against a basket of trade partners’ currencies in more than six weeks, as investors anticipated lower interest rates in the US. The euro is above $1.32, and the yen is at its strongest mark since the Bank of Japan intervened to stem its rise. Gold also made a fresh nominal all-time high at $1,289 an ounce, the fifth time it has done so in September.

Fed hints it could buy more bonds

The Federal Reserve has opened the door to buying billions of dollars of Treasury bonds in a further programme of quantitative easing by making a substantial change to the policy statement issued after its September meeting, reports the FT. The rate-setting Federal Open Market Committee said on Tuesday that it “is prepared to provide additional accommodation if needed to support the economic recovery”, displaying a bias towards easing absent from its last policy statement. FT Alphaville adds commentary here.

FOMC follow-up

It didn’t take long for a narrative to emerge in the aftermath of the FOMC statement: the Fed is preparing to pursue fresh QE measures soon in spite of not having done so this time round.

The market seems to agree with this, with the S&P 500 spiking immediately after the announcement before starting to trend downward again: Read more

The view from investors

Sure, the NBER says the recession ended more than a year ago, but we all know the economy remains in uncertain territory.

And what do investors think? According to Bloomberg’s latest quarterly poll, the right word seems to be…sloggy: Read more

FOMC statement

The FOMC’s new statement is out, and the only real change from the August version has to do with inflation, which is “below those the Committee judges most consistent, over the longer run, with its mandate to promote maximum employment and price stability.”

In the previous statement, Bernanke had said only that inflation was trending lower. Read more

The problem of excess savings

What to make of the excess savings (aka boatloads of cash) that remain on US corporate balance sheets?

In trying to answer this question, economist Rebecca Wilder has used data from the Fed’s latest flow of funds report to update the following graph, originally taken from JP Morgan research: Read more

Petropavlovsk & Sons

Petropavlovsk is a curious company.

On Tuesday the Russian miner issued the prospectus for the listing of its non precious metals business on the Hong Kong stock exchange. This, remember, is a business the company has already spun off once (on the London Stock Exchange) and bought back so the parent company could access its cash. Read more

Further reading (for the IBC)

More bedtime reading for the UK’s Independent Banking Commission; this time from research house Autonomous.

The report was referenced in Tuesday’s Wall Street Journal as a curtain raiser to the publication on Friday of the IBC’s ‘Issues Paper’. But it is well worth revisiting because it highlights just how fast margins on mortgage lending have risen in the UK. Read more

Something rotten in British football

A speech by Paul Marshall, the co-founder of Marshall Wace, (and Manchester United fan) to the Liberal Democrat autumn party conference on Monday night.

(Warning — it’s long.) Read more

Those bund-lengthening pension funds

You remember the summer’s flattening of the yield curves, don’t you?

It was especially pronounced on bunds — as late as August 25, for instance, the 2-year and 30-year parts of the German yield curve flattened to about 215bps: Read more

God loves, man fiddles

Someone hasn’t been reading Matthew 6:24. From Reuters on Tuesday:

The head of the Vatican bank Ettore Gotti Tedeschi has been placed under investigation by Rome magistrates for suspected money-laundering by the bank, judicial sources said on Tuesday. His office and the Vatican spokesman said they had no immediate comment…

 Read more

Mmm, Greek yield moussaka

This was an interesting Greek debt revelation on Tuesday:

(Reuters) – Foreign investors bought most of Greece’s issue of 3-month T-bills auctioned on Tuesday, the head of the country’s debt agency (PDMA) told Reuters. Read more

Markets Live transcript 21 Sep 2010

Live markets commentary from 

Betfair is, well, a fair bet

Now here’s an online-based IPO that sane investors could actually consider backing.

From RNS on Tuesday morningRead more

Irish debt sale sees double-edged result

Ireland has managed to sell $1.96bn of bonds amid intense scrutiny of the sustainability of its debt — but not without paying a handsome rate on the issue, FT Alphaville reports. The yield on an issue of 2018 bonds reached 6.023 per cent on average, one percentage point above the likely rate that Ireland could expect from the eurozone’s bailout fund. While closely watched for signs of Europe’s sovereign debt crisis returning, Ireland’s auction was never likely to fail — the European Central Bank is likely to have waited in the wings as a buyer of last resort, much as it has already purchased 22 per cent of outstanding Irish debt.

Ireland’s debt sale — well received, thank you very much

Results of Ireland’s highly watched bond auction are out, and the news is double-edged.

Yes, Ireland did get €1bn of 2018 and €500m of 2014 bonds sold, but the country had to pay handsomely to get the debt away. The yield on the 2018 issue came in at an average 6.023 per cent, while the average on the 2014 issue was 4.767 per cent. Read more

Bank of America looking at layoffs

Bank of America will cut several hundred jobs in its investment banking division, bringing home the effects of the slowdown in bond and equities trading in 2010’s second half, the NYT reports. Bank of America hired over a thousand employees in the first half as it built on its crisis-era acquisition of Merrill Lynch — but the job cuts will slash through equities and fixed income desks alike as the economic recovery fades. Meanwhile, Bloomberg reports that Goldman Sachs has offered one of the best-performing financial stocks in the past decade. Returns on its stock beat the S&P 500 — but generally stand out as the best of a poor bunch of bank stocks.

Renminbi flirts with ‘mini-revaluation’

China’s central bank has lifted the renminbi’s daily reference rate against the dollar for the ninth day in a row, creating the longest set of gains since the last big revaluation of the currency in 2005, Reuters reports. The renminbi rose 1.35 per cent over the nine days, ahead of a Chinese holiday — and during a run of tough US rhetoric on the need for revaluation. At the same time, eight former trade representatives and commerce secretaries have attacked plans in Congress to pass a law punishing Chinese imports for failures to revalue fast enough, according to the FT.

Stuck in the middle with the Fed

Traders have been tweaking their positions in Asia and Europe ahead of the Federal Reserve’s latest monetary policy pronouncement, the FT reports. Equity futures suggest the S&P 500 in New York will pull back fractionally from the four-month high reached after the benchmark powered through some heavy technical resistance on Monday.

Few analysts expect the Fed to shift policy this time around. But it will probably provide a chance for board members to consider not if but how much quantitative easing they should bring to bear on the economy at a later date, Reuters says. In particular, the Fed has to decide if it would be better to buy Treasuries all at once in a massive purchase, or in amounts spread over several Fed meetings.

From heavy neutrinos to the flash crash

Gregg Berman once sifted through subatomic data during his doctoral studies as a physicist — skills that will come in handy as he leads the team who are probing the causes of the May 6 flash crash, the NYT reports. Berman, who will publish his study into the crash in a fortnight’s time, said he had not found evidence of deliberate manipulation in the run-up to the twenty minutes of extremely volatile trading on May 6. Instead, he warned that the report is set to show that the crash had specific but painfully complex causes. That may do little to reassure investors ahead of a further report from the SEC.

BHP faces long wait for Potash

Canadian regulators have delayed BHP Billiton’s hostile bid for PotashCorp, probably pushing a resolution into next year, Reuters reports. The miner extended its offer to November after authorities asked for more information. Investors aren’t too bothered by the delay in so far as a serious rival bid has failed to emerge already — but that might change if the rumours of Chinese interest materialise. BHP might have just as many problems with Canadian regulators themselves, who have expressed concerns over how the royalties they gather from potash production would change if BHP drives prices down, the FT reports.

HP and Oracle reach settlement over Hurd

That didn’t last long. Hewlett-Packard has abandoned its legal attempt to prevent former chief executive Mark Hurd from moving to Oracle only a fortnight after filing papers, the NYT reports. Hurd has waived rights over restricted stock units and the two companies said he would protect HP’s confidential information, adds the FT — and Oracle and HP even confirmed that they would renew their strategic partnership into the bargain. HP can count this one as a small victory, Reuters says — it was never going to win in court, but at least it’s clawed back some money for shareholders.

Deutsche Bank confirms $13.3bn share sale

Germany’s largest bank will launch Europe’s biggest rights offer this year to acquire Deutsche Postbank and shore up its capital, Bloomberg reports. The size of the issue is bigger than expected, the FT says. Postbank is one of the better catches in German retail banking, but it’s thinly capitalised — and the strategy for Deutsche Bank is to consolidate its retail offering as it bids to rid itself of low profits caused by a dependence on investment banking. German banks are also still complaining about their ability to meet Basel III’s higher capital standards, the FT adds.

Fat lady sings on recession

Goodbye to the longest downturn since the Great Depression — not that it’s particularly cheering news. The National Bureau of Economic Research may have declared the recession lasted from December 2007 to June 2009, but the actual confirmation here is that recovery since then has been extremely weak, the FT reports. Indeed, the OECD announced on the same day that it does not expect unemployment to return to its pre-recession rate until 2013, according to the WSJ. That’s prompted more calls for NBER to factor in the employment situation more into its business cycle calculations, reports the NYT.